The financial lending industry has been severely affected by the numerous defaults on sub-prime loans and mortgages. The credit crunch has caused bank and other institutions that offer student loans to take action, and this is most commonly done by raising interest rates. Even K-State has had to make changes to the types of loans it offers.
The Office of Student Financial Assistance offers students the option of choosing two types of loans: Federal Direct Loans, which are funded and guaranteed by the federal government; and Federal Family Educational Loans, which are funded by the government but processed through private lenders. However, after this semester, the university will no longer offer Federal Family Educational Loans, said Larry Moeder, director of admissions and student financial assistance.
Moeder said because of the hardships that private-sector lenders are facing, the university will only offer Federal Direct Loans.
“We are moving loans from the private sector back to the Federal Direct Student Loan program,” he said. “These loans are processed and serviced directly by the federal government.”
Moeder said K-State is taking this action to make sure students are guaranteed the necessary financial assistance. Since Federal Family Educational Loans, also know as Stafford Loans, are run by private lenders, and since some lenders have reduced the number of loans they offer, Moeder said the Federal Direct Loans will be the smartest choice for students.
He also said students can request to use Stafford Loans, but this would be rare.
“The university will still offer Stafford Loans if the student requests it,” he said, “if they have a relationship with a lender and they want to keep it that way. This probably will be very, very rare. Maybe if they have been with a bank for a while.”
GOVERNMENT DOLLARS
Federal Direct loans do not involve private lenders, since the government supplies to fund, and it is because of this that Direct loans are much less risky than other loans. Since these loans are guaranteed, some students don’t see the financial crisis as a threat to financial assistance.
Janelle Franklin, senior in animal science and industry, said she does not follow business or economic news, and she was not worried about how the economy and credit situation will affect her financial aid.
“My mom pays attention to stuff like that, but not me,” she said. “School is my main focus right now.”
Hard times
Franklin said she has had student loans all four years of college, and she receives them from Sallie Mae, the largest student lender in the country. Sallie Mae reported a first-quarter loss of more than $100 million, the company’s Web site reported on April 16.
Moeder said it is difficulties like those faced by Sallie Mae that the university wants to ensure that students get the loans they need. He said the two types of loans offered are similar, in that the interest rates are the same and set by law, but that the security of Federal Direct loans offer more certainty.
“Federal Direct Loans are the best option for students because of the stability and benefits,” he said.
The benefits these loans offer are the ability for students to consolidate their loans and students can choose to subsidize their loans, in which interest does not take effect until after the student leaves college, or unsubsidized loans in which the interest accrues, he said.
PAY BACK TO THE FUTURE
Franklin said she will continue to take out loans in the future, but that she’s not sure from whom.
“I’m going to grad school, so I will have a lot to pay back,” she said. “It will take a while, but I should be able to pay it back.”
Moeder said the university’s decision will not affect any students with outstanding Stafford Loans, and loans will always be available.
“Students have nothing to be worried about,” he said. “There will always be loans available to students.”